NEWS
COMMENTARY
INTERVIEW
CHAT
ARCHIVES

The Rediff Business Special

MNCs dilemma: To stay or to quit?

Multinationals are less and less interested in India," says the country head of one of them. "Talking of Asia, they mention China. If nobody makes money, who will be interested?"

Whirlpool India plunged into the slumpy refrigerator and washing machine industries. Now, losses have apparently forced the sale of its compressor unit with plans to shed the automotive components and plastics divisions.

Peugeot, making 306 sedans here, decided last month to sell its Indian stake to partner Premier Automobiles after halted production and losses of Rs 1.5 billion. ""We are surprised by what happened," said a Premier spokesman.

Not others. "Foreign car makers," says a senior manager at the Tata Engineering & Locomotive Co Ltd in Delhi, "produce 10,000 cars daily. Here, they are down to 4,000 units yearly. If the industrial slowdown lasts longer than six months, many will ask themselves, 'What is the point of going on?'."

The slowdown spiked no revolution, though. Half of all cars sold are Maruti 800s. Yet some of them installed capacities of between 60,000 cc to 165,000 cc to make, amongst others, such low-selling Rs 400,000 to Rs 800,000 models as Cielo or Peugeot 306. Mahindra Ford and GM-Opel knowingly installed perhaps the smallest 25,000-capacity units each. Still, Opel's Vij says, they work one shift or at half capacity. In all, 650,000 units are being installed. "This exceeds demand," says Vij. "There will be a shakeout."

FICCI's Mahim Bisht feels that only "four-five companies in every industry will survive such a shakeout." Gurcharan Das, a Citicorp director, feels it will take a while happening: "Companies think long-term." I Natarajan, chief economist at the National Council of Applied Economic Research, and Tara Sinha have a pragmatic explanation: that they have deeper pockets. "If the rupee keeps on devaluing," adds Sinha, "it is all right for them."

But Whirlpool and Peugeot's actions have shown that patience -- and money -- can run out nevertheless. The huge losses cellular telephone makers and operators incur as they rival each other beating handset prices down every 45 days and subsiding their services for subscribers may lead to bust.

The flip side is Akai's offer of its 21 and 14-inch colour televisions in exchange for your old 21-inch television with remote and an extra payment of Rs 17,000 splashed in mega colour newspaper advertisements. Can it be making money? "Yes," says Sanjeev Arora, who manages a large consumer electronics store in upper-class Vasant Vihar in south Delhi. "Two-three thousand rupees. But we don't get any margin. We make 150 exchanges a month."

Ramesh Chauhan, who sold Thums Up to Coca-Cola for $ 5 million, convinced he couldn't stay on, reckons Akai to be making little money on exchanges, if at all, accounting for overheads, paid advertisements, etc. "The aim," says Arora, "seems more to be to run Indian manufacturers out of business. Then they will take over. Where do you see Lakhani shoes now?" After Akai's scheme few are willing to consider Indian brands. Yet, other foreign manufacturers coming with exchange offers before Akai found them unprofitable.

So, it is early to say if Akai will win or what works or what doesn't and who will stay and who won't. GM-Opel's Vij is sure, saying, "Despite adverse conditions, you have to be present." FICCI's Bisht observes, "Many multinationals are not investing in real estate but renting accommodations and cars. Their attitude is, 'We will pack our bags anytime and go'."

New survey puts middle class at 425 million

Back

Kind courtesy: Sunday magazine